(Reuters) - Iran is set to sharply expand its uranium enrichment in an underground plant after installing all the centrifuges it was built for, a U.N. report said, a move likely to increase Western alarm about Tehran's nuclear course.

It also showed that Iran's stockpile of its most sensitive nuclear material - which could relatively quickly be processed further to bomb-grade uranium - had grown and was getting closer to an amount that could be sufficient for a nuclear weapon.

The latest quarterly International Atomic Energy Agency (IAEA) report on Iran came 10 days after the re-election of U.S. President Barack Obama, which raised hopes for a revival of nuclear diplomacy with Iran following speculation that Israel might attack the nuclear facilities of its arch-enemy soon.

But the U.N. watchdog's findings underlined the tough task facing world powers seeking to pressure Iran to curb atomic activity they fear is aimed at developing a nuclear weapons capability, a charge Tehran denies.